In the evolving landscape of the media, telecommunications and technology industry, content is a significant factor that has been changing the current M&A activity. Here’s when I spoke to Law 360 about this trend and it’s effect on the market and on deal value.
New York, New York
Oct. 28, 2016
Content is king, according to dealmakers in the technology, media and telecommunications fields, and the drive to snap up that content is one of the biggest drivers of mergers and acquisition activity in a sector that has been far and away a leader in the space both this year and last.
A study done earlier this month by Manatt Phelps & Phillips LLP found that three of the top five priorities for dealmakers polled by the firm were related to content and content creation, while the other two involved the distribution of said content.
And recent dealmaking has borne out those priorities. Earlier this week, in the year’s largest deal, AT&T Inc. made an $85.4 billion cash-and-stock offer for Time Warner Inc., a merger that would marry AT&T’s 100 million-plus customers and Time Warner’s library of content, including HBO, Warner Bros., TBS, TNT and CNN.
Hale Boggs, a Manatt partner and the architect of the study, says these tech and telecom companies are looking at ways to own the content that many of them are already serving across their platforms. A deal cuts out the middleman and removes the need to pay huge licensing fees.
“There is certainly a definable trend across media and technology that will drive convergence of major tech companies with major media companies,” Boggs said. “All of them want to own the content creation and distribution to consumers.”
These companies are racing to see who can accumulate the most content, according to Paul Aversano, a managing director at Alvarez & Marsal. Whoever controls the content, he said, can then determine how it is distributed and ultimately its value.
Content itself is changing as well, blurring the lines between telecom, media, cable and technology companies. Watching a program on TV at home isn’t the only way to consume content in today’s world. That same program can be streamed on a computer at work, or on a tablet in a conference room and even on a phone in a car, says Wachtell Lipton Rosen & Katz partner Ed Lee.
“We all know what content is, but the way that it’s being delivered is changing every single day,” Lee said. “The way that I consume content is very different from the way my children consume content, and very different from the way my parents consume content.”
Executives seem to agree. When the AT&T-Time Warner deal was officially announced on Oct. 22, AT&T Chairman and CEO Randall Stephenson acknowledged the importance of content to the company.
“Premium content always wins,” he said in a statement announcing the deal. “It has been true on the big screen, the TV screen and now it’s proving true on the mobile screen.”
The deal would give AT&T the option of bundling its existing offerings with new products, like pay TV and wireless, while also defending it from cable companies that are threatening to come into the wireless space themselves, Mark Stodden, a senior vice president on Moody’s Investors Service’s corporate finance team said.
AT&T’s strategy is to leverage Time Warner’s high-quality content, like HBO, which is known as the crown jewel of over-the-top video, to distribute video across all platforms, Stodden added.
This differs from say, Verizon Wireless Inc.’s approach to content. The other wireless giant is targeting mobile content rather than the pay TV content that AT&T is targeting, he said. Specifically, Verizon is looking at millennials, rather than broad audiences, in a bid to drive advertising revenue through its mobile video platform.
In July, Verizon said it would buy Yahoo Inc.’s core business for $4.83 billion and integrate it with AOL Inc., which it purchased last year.
Both approaches look to push revenue through a mobile platform, but the companies are taking two very separate approaches to solve the same problem. Time will tell which approach is correct in the end.
“I think they’re trying to do the same thing in the end, but they’re going at it from opposite approaches,” Stodden said.
As the industry continues to change, companies are looking to stay ahead of the game, something Lee said is driving the consolidation in the industry. The fact that there’s no roadmap to success means that these companies have to be nimble and well-positioned for change, he added.
“People are effectively taking bets on what the future of content and content delivery is going to look like,” Lee said. “[Companies] are taking different approaches, depending on what their vision is for the future. It’s hard to know how it will turn out.”